Notwithstanding recent challenges, the long-term prospects for the Indian IT services industry are healthy, given India’s competitive strengths in outsourcing, the benefits of the global delivery model, and customers’ focus on cost reduction, the ratings agency has said

Ratings agency CRISIL said that it believes that Indian IT service providers have strong long-term prospects and that they are well positioned to benefit from the gradual improvement in demand, as key markets like the US and Europe show signs of economic revival.

Pawan Agrawal, director, CRISIL Ratings said, “CRISIL-rated Indian IT service providers have responded to a challenging business environment by enhancing operational efficiency, diversifying their business profiles, enhancing risk-management practices, and maintaining strong liquidity.”

Notwithstanding recent challenges, the long-term prospects for the Indian IT services industry are healthy, given India’s competitive strengths in outsourcing, the benefits of the global delivery model, and customers’ focus on cost reduction.

However, the revival of demand may be gradual, as the economies in key markets remain fragile and discretionary IT spending by customers may remain subdued over the medium term, the ratings agency said.

CRISIL said that Indian IT service providers have focused on increasing the proportion of fixed-price contracts, changing effort mix in favour of offshore operations over onsite, and improving manpower utilisation. Players have also begun to increasingly focus on high-end services such as infrastructure management and enterprise applications, which have higher margins than traditional low-end application development and maintenance services. Furthermore, most players have maintained low gearing and robust liquidity in the form of substantial cash and bank balances and liquid investments, it added.

“Given the measures implemented by IT service providers, their healthy long-term growth prospects, and strong financial risk profiles, there have been no downward revisions in the ratings of CRISIL-rated IT service providers despite the weak business environment, though a few rating outlooks have been revised downwards," said Sudip Sural, head, CRISIL Ratings, in a release.

Total tenders invited by government bodies in the construction and engineering segment during the first ten months of FY10 fell by 33% due to negative growth reported in overall tender inflows

Tendering activity by government bodies remained muted during the first ten months of FY2010 due to negative growth reported in overall tender inflow. During April-January FY10, the total worth of tenders invited by government bodies declined 33% to Rs564 billion from Rs845 billion reported in the same period last year, said RBS in a research note.

The all-around dip in tenders due to the high base effect created in the final year of the previous government was expected. However, instability issues witnessed in key states like Andhra Pradesh and Maharashtra accentuated the situation during the reported period.

The high base effect from last year has lowered general tendering growth, but the benefit to leading construction firms from National Highway Authority of India (NHAI) activity is now visible.

The average tender size has also fallen from Rs0.82 billion to Rs0.79 billion. Similarly, the number of tenders invited has also fallen from 1,026 to 714 registering a negative growth of 30% over the same period a year ago.

RBS said that major negative growth in tender inflows was noticed in Andhra Pradesh and Gujarat. During the first ten months of the current fiscal year, the total worth of tender inflows in Andhra Pradesh has fallen by 83% to Rs12.20 billion from Rs70.30 billion reported last year. Similarly, the total worth of order inflows for Gujarat tumbled by 91% to Rs3.20 billion from Rs36.30 billion.

However, states like Chhattisgarh, Tamil Nadu and Rajasthan have reported a positive growth in order inflow. The total worth of order inflow for Chhattisgarh has increased to Rs24.80 billion from Rs11.80 billion while Tamil Nadu and Rajasthan reported a modest growth of 16% and 18%, respectively, the report added.

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